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How to write a debt settlement proposal letter

Debt settlement is something many people consider if they can offer a lump sum of money upfront – usually less than the total amount owed – in the hope the creditor (the organisation you owe money to) will agree and accept the debt as settled.

Doing this means your debt can be removed earlier, and you will no longer need to worry about making repayments.

What to consider when writing a debt settlement proposal letter

When proposing a full and final debt settlement to creditors, you need to outline:

  • How you wish to settle your debt
  • How much you are offering to pay
  • When you can pay

Your debt settlement proposal letter must be formal and clearly state your intentions and what you expect from your creditors.

You should also include all the key information your creditor will need to locate your account on their system, which includes:

  • Your full name used on the account
  • Your full address
  • Any account numbers or reference numbers that are linked to your account

Creditors should be able to use these to find all your relevant information and confirm who you are when they receive your debt settlement proposal.

Debt settlement proposal letter template

Below, we’ve created an example of a debt settlement proposal letter that you can use as a guide. Your letter can be sent via your preferred contact method.

Simply copy and paste this into a Word document and fill out the blank sections or tailor it to suit your needs:

[Name of creditor organisation]

[Your name and address]

[Write out creditor’s address]


Account Number: [insert the account number linked to your debt here]

Dear Sir/Madam,

I am writing to you regarding the money you are claiming payment for, on the above account.

I am unable to repay this amount in full due to [explain your current circumstances that prevent you from repaying this debt in full to ensure the creditor understands your situation]

I can instead offer the total amount of £[insert the amount you are able to pay] as a full and final settlement.

If this is accepted, you agree that you or any associate company can take no further action against myself to enforce or collect this debt and that I will be released from all liability.

Please also confirm that you will also mark my credit reference agency file to show that you have accepted the above amount as the full and final settlement and that the account is closed and paid.

I am able to pay the amount I have offered within [insert length of time within which you can pay] once you have accepted my offer and I have received written agreement of this.

Please confirm where to make payment to.

Yours faithfully,

[Your full name]

This letter clearly states your intentions and what you need the creditor to do. We recommend you follow the same structure or use this as a template to offer a debt settlement.

If the creditor accepts your offer, ensure this is in writing before you send any money to them. Keep this written confirmation safe, too, in case there is any dispute in the future so that you can offer this as proof of the agreement.

It’s important to remember that if you settle early on your debt, this means you are not paying it in full, and so it will show as partially settled on your credit report instead of settled.

This can affect your ability to obtain credit in the future, as it suggests to future creditors that you may not be able to pay back the full amount borrowed.

If you are looking for guidance when dealing with creditors and proposing a debt settlement, our team can help.

Speak to our experts on 0800 316 1833 or use our contact form to get in touch.

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